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Private and Confidential

January 2006

The following sections are delivered through Astraea. The links below will take you to those sections.



The events of the last few weeks around the world seem to highlight tensions between group behaviour and individualism, and at national levels the tension isdemocracy vs empire.  While people seem to swing between these poles, community has deteriorated and is often lacking in the wealthy parts of our world.  We recognise national and individual identity, but where's the community?  2005 saw urban population exceed rural population globally.  Does this mean people don't mind not owning the land because apartments and shared space gives sufficient security and the concepts of social security are reliable enough to satisfy people's basic natural needs. Rejuvenating community requires commitment over time - the expectation of moving on or returning home removes the incentive to sink in roots where one is now.  And only people with roots really mind about the community - where the road goes, looking after one's neighbour and vitality of land.  I believe that an emphasis on nurturing communities and community values will soon become one of the defining trends of human initiative because it is required that we adopt the values of community to resolve the many faceted challenges we are creating, like energy and inequality.

Dr Alexander Osterwalder, a Business Manager with The Constellation for AIDS Competence, offers a valuable insight to energising communities which is applicable to business as well as society.  "What I learned was that this community had access to treatment and didn't see money as an issue - but still they hadn't "solved" the problem. So what I take back to my work is that while treatment and money are necessary they are by far not sufficient to respond to the challenges of HIV/AIDS in our society! Local ownership is needed to tackle HIV/AIDS!"  And of course it is common ownership which defines community whether in a village or a high performing team - if the people don't feel ownership they won't realise potential.  You can read the blogpost and look at the picture of the self-assessment of this community visit that has left such a strong impression on him.


Investment, Finance & V. C.

Yet again we reflect on the US deficit which is drawing increasing attention and concern.  It is underpinned by the profligate American consumer who can continue to consume today in exchange for a promise to pay tomorrow.  But can most certainly not honour its debts today.  Is it not time to grow-up and take responsibility for oneself - defer the new SUV and paydown some of that credit card bill before China calls the loan.  Perhaps is bankruptcy law was more disciplined people would plan more conservatively.  The bankruptcy law in the early Roman Republic certainly did not tolerate serial debtors:

"A person who admits to owing money or has been adjudged to owe money must be given thirty days to pay.

"After then, the creditor can lay hands on him and haul him to court. If he does not satisfy the judgement and no one is surety for him, the creditor may take the defendant with him in stocks or chains. He may bind him with weights of at least fifteen pounds.

"On the third market day, the creditors may cut the debtor to pieces. If they take more than they are due, they do so with impunity."

Unfortunately America's role models are not setting a good example.  Reports of increases in director's pay does not bode well. Boardroom pay in America went up by an average of 19.6 per cent last year, while individual company directors pocketed an extra 16.5 per cent, according to research body Board Analyst.  Reported average total board compensation was $801,500.  They referred to these numbers as "restrained"!

New analysis by Elizabeth Warren illuminates the Rising Financial Risks for American Families.  This stems from the high productive capacity utilisation in families: both parents work, combined with expensive "necessities" which are bought on credit, such as SUVs, fashion, entertainment, and investment properties.  This leverage in the economy has the propensity to cause severe economic pain to working families.  People's optimistic spending has not accounted for the risk of changing conditions appropriately. Google's recent underperformance is simply the result of exaggerated expectations.  And those expectations are more worrying than volatility in a company stock that has doubled in a year. As John Mauldin points out, earnings disappointments can rapidly translate in to price depression.  "Bear markets start because of relatively small earnings disappointments. Not so much as to be alarming, but it starts with a trend of slower earnings growth. Investors project recent earnings trends well into the future. When earnings have been growing well over a period of several years, as they have been recently, stocks get priced to perfection. Management is not allowed to disappoint without getting punished, and we are starting to see that happen."  And with the US economy extended as it is, volatility could be great.

Housing is the asset that people are watching with many observers concerned that it is a dangerous bubble, which if defaulted will reverberate throughout the economy. Gary Shilling has put some numbers on the devaluation effect that could happen. "A 10% rise in house prices leads to a 0.62% increase in consumer spending, about twice the rise from a 10% jump in stock prices. So, the $2 trillion rise in house values in the last several years just about offset, in terms of consumer spending effects, the earlier $4 trillion drop in equities.  Obviously, this effect will work in reverse as house prices fall."

The World Economic Forum took place in Davos in January where a number of cautions were raised.  The particular novelty of this year's forum was that the theme of ethics and environment, with a focus on energy,  global warming and poverty, suffused all gatherings. (See more below in Responsible Investing.)

Speakers noted that, so far the world economy had been far more resilient than predicted, managing to live with high oil prices and US deficits. The new addition to these worries that they voiced, is the sustainability of  China's current economic model which is propping up the US deficit.  The observation that spending and savings habits of US consumers would have to change was reiterated. Concerns about dollar devaluation remain and all expect oil prices to remain high, not least because oil refineries around the world were working at full capacity, and demand from key countries like India, China and the United States showed no signs of abating.  Stephen Roach, chief economist at Morgan Stanley, reiterated concerns that western economies, in particular the US, are not considering downside risks appropriately, saying that markets and policymakers had developed "a dangerous degree of complacency", assuming that an unbalanced world economy could continue without correction.

When shares in dotcom Livedoor collapsed in January, Tokyo's stock exchange closed early for the first time in its history in a bid to head off a meltdown after a frantic day's trading.  The index bounced back but Livedoor is still under a cloud of investigation for fraud.

The sale of second and third-tier Chinese banks to private equity investors continues as Singapore’s Oversea-Chinese Banking Corp (OCBC) is buying a 12% stake in China’s Ningbo Commercial Bank for $70 million as part of its strategy to expand beyond Singapore and Malaysia.

This year is the 40th anniversary of the World Future Society and they have put their Art of Foresight freely online.  It is worthwhile reading for investors, managers and anyone who forecasts.

Responsible Investing

Is socially responsible investing (SRI) growing, shrinking, or holding its own? These are the questions on the minds of readers of the 2005 Trends Report from the Social Investment Forum (SIF), which released the most recent edition of this biennial study in January. The answer is: all three, depending on how the data is presented.   The overall amount of money (or assets under management,  ) invested in one or more of the three main SRI strategies (screening, shareholder advocacy, and community investing) grew to $2.29 trillion in 2005 from $2.16 trillion in 2003. However, this represents a decline from the peak of $2.32 trillion in 2001.  Nearly one in ten dollars is now invested in SRI (9.4 percent of the $ 24.4 trillion in total assets under professional management according to the Directory of Investment Managers from Nelson Information), but this ratio is down from one in nine dollars in 2003. Looking at the long-term, the 258 percent growth in overall SRI assets during the decade since the first SIF Trends Report in 1995 has slightly outpaced the 249 percent rise in the overall market, a distinction heightened when isolating the role of mutual funds.

The "Big Debate," an interactive dialogue amongst 600 attendees of the World Economic Forum (WEF) meeting in Davos, Switzerland on questions like the economic emergence of China and India, identified sustainability as the key issue requiring creative responses. One such response came today from Corporate Knights, a Canadian magazine on corporate social responsibility (CSR), and Innovest Strategic Value Advisors, a socially responsible investing (SRI) research firm, who announced the Global 100 Most Sustainable Companies in Davos, documenting financial outperformance. Distinguishing this year's list from last year's inaugural compilation is the accompaniment of a study back testing a portfolio evenly weighted with this year's 100 companies over the past five years. The back test shows 7.11 percent outperformance compared to the MSCI World Index.  "Global companies' performance on ESG (environmental, social, and governance) issues is rapidly becoming more critical to their competitiveness, profitability, and share price," said Matthew Kiernan, chief executive of Innovest. "The Global 100 companies showcased here today have already demonstrated that sustainability premium, and we believe that they are positioned to reward their investors even more heavily in the future."

The first Global 100 list faced criticism last year in an AlterNet.org article by Paul Hawken, who helped introduce the notion of sustainability into the US in the early 1990s through such initiatives as the Natural Step. Focusing on some of the first companies on the list, Mr. Hawken cited a litany of unsustainable business practices of ABB and Bristol Myers Squibb.  "Some of the companies I targeted then are on the list again," Mr. Hawken said.  ABB made the list again this year, but Bristol Myers Squibb joined the ranks of those dropped from the list. Also dropped were Pepsico (which Mr. Hawken also criticized last year), Shell, Weyerhaeuser, and Xerox. Companies added to the list this year include Coca-Cola (which Mr. Hawken has criticized elsewhere), General Electric, Johnson & Johnson, and Nike. These changes have not altered the premise of Mr. Hawken's critique which has helped investors be more self-critical.

Also at the WEF the most irresponsible corporations were named in the second annual Public Eye Awards, awarded by the Berne Declaration and Pro Natura.  Chevron "won" in the environmental category for the legacy of subsidiary Texaco's contamination of the Ecuadorian rainforest; Walt Disney in the social category for labour and human rights violations of Chinese suppliers; and Citigroup in the tax category for abetting tax evasion. The first "Positive Award" went to the Mexican labour union National Revolutionary Union of Euzkadi Workers (SNRTE) and two German non-governmental organizations, Germanwatch and Food First Information & Action Network (FIAN), which protested the unlawful closure of the Euzkadi factory of tire multinational Continental (CON.DE), leading to the reopening in February 2005 with the workers as joint owners of the factory.

Peter Kinder, CEO of KLD which administers the Domini index, published in January his thoughts on understanding SRI - Social Screening: Still Controversial; Still Misunderstood - which is a succinct intro to SRI issues today.

Venture Capital

A number of statistics for the US VC industry were released in January by PricewaterhouseCoopers, Thomson Financial and the National Venture Capital Association.  Venture capitalists invested approximately $21.68 billion into U.S.-based companies in 2005, according to MoneyTree Survey data released today  This represents a very slight bump over the $21.64 billion raised in 2004, with average deal size rising from $7.29 million to $7.37 million.  Q4 2005 figures, however, showed a slight drop from Q3 2005.  The 2005 VC fund-raising data also came out. Overall, 182 U.S.-based firms netted $25.2 billion, which is the highest yearly total since 309 funds grabbed $38 billion in 2001.

In 2005, there were 845 leveraged buyouts of U.S. targets or which included at least one U.S. sponsor, worth a disclosed $197.8 billion (including debt). This represents a 44% increase over the 2004 disclosed deal value and more than twice 2003’s total. Q4 2005 included 195 deals worth an all-time quarterly high of $59 billion. U.S.-based buyout and mezzanine firms also were busy in the fund-raising market, with a remarkable $173.5 billion raised. This compares with just $42 billion in 2004 and $24 billion in 2003.

For good measure, M&A and IPO data also came out. Fifty-six VC-backed companies raised $4.5 billion via IPOs on U.S. exchanges in 2005, which is a 40% volume decline from 2004. There were 330 VC-backed M&A transactions, with disclosed value of $14.4 billion, which was similar to 2004.

A number of forces seem to be at work.  As mentioned in previous Reviews, Sarbanes-Oxley costs have dampened private company enthusiasm for going public on U.S. exchanges so most liquidity-seeking companies will try the M&A route and banks continue to want to lend out acquisition-related financing.  M&A valuations continue to rise, partly because there is financing available to back the deals.   Rising valuations is also helping turns possible sellers into probable sellers. There is also equity to launch deals, both from private equity players that need to invest and also from corporate treasury which has money to spend.

In Asia, 151 private equity funds were raised in 2005 for investments in Asia, Australia, New Zealand and the Middle East, raising a combined $47 billion across all types of private equity investing.The overwhelming majority of the new funds are going into two countries: China and India. China was the single-most active country in Asia in terms of the amount of money and the number of new funds being raised, with 32 funds focused exclusively on China. However, nine other funds say they're raising funds for Greater China (i.e., China, Taiwan and Hong Kong).  Including these gives a total of 38 funds focusing on China. India picked up one new fund in the last two months, bringing the total of new funds being raised there for the year to 18. The numbers for both China and India, however, are under-representative as there are another 23 new funds which say they are pan-Asian in nature. In practice these funds will invest much of their money in either China or India as well. In total about half of the funds being raised -- more then $20 billion -- will be invested in China or India. The surprise was realising that the Middle East, long a source of funds but not a place where PE funds invest, is now growing almost as quickly as China and India .  Evidently investors think that the risk/return profile in the Middle East has improved, perhaps because of the heavy US presence in Iraq.

As mentioned above in Geopolitics, Singapore Government's Temasek has made one the biggest buyouts in Asian history acquiring Thailand's Shin Corp for close to $2 billion. Temasek is leading a consortium of investors that includes the Siam Commercial Bank of Thailand and a group of individual private equity investors under the name of Kularb Kaew PCL. The deal gives the consortium control of Shin Corp and its assets including Advanced Info Service Public Company Limited (AIS) (Thailand's largest mobile services provider), iTV (a Thai broadcasting company), CS Lox Info (Thailand's largest internet services provider) and Shin Satellite (the owner of three communications satellites). The all-cash deal gives Temasek and its co-investors a 49.6% share of Shin Corp, through two financial entities Cedar Holdings and Aspen Holdings controlled by Temasek.

WHEB Ventures, a London based investor in clean technologies backed by Goldsmith family capital, is investing $3 million in Adelaide, Australia-based water-management solutions company Agrilink.

Seattle BioFuels raised $7.5 million in Series A funding from Nth Power, Technology Partners and Vulcan Capital.


Interest Rates and Currencies

The King is dead. Long live the King.  Greenspan moved on at the end of January and Bernake replaces him.  While praise has been lavished upon Greenspan in the run up to his hand-over, more critical reviews have noted that he has left behind some of the largest imbalances in US history not least of which is the deficit.

Progressive Policy Institute (PPI) offers a clear description of what is going on:

This year's American budget deficit will be around $360 billion - a figure roughly equal to the GDP of middle-sized countries like Australia or the Netherlands. To cover the gap, each month the Treasury Department sells bonds and T-bills. Foreign central banks and private financial institutions buy many of these securities, in return for interest payments or later redemption at higher values. Together, they hold about $2.2 trillion worth of American government securities; foreign governments account for $1.25 trillion of the total and private financial institutions a bit more than $900 billion. 

Japan is the largest single holder of these securities, with $ 682 billion as of October 2005, and also their fastest-growing holder inabsolute terms, with holdings up from $317 billion in mid-2001. China is the second-largest holder, with $ 248 billion, and also the fastest-growing major T-bill holder in percentage terms over the past four years. (The holdings rising from $74 billion in mid-2001.)  The UK is third with $187 billion, and was the fastest accumulator of US government debt in 2005. Taiwan, Germany, Korea, Canada and Hong Kong also hold $50 billion or more in U.S. securities; OPEC nations together hold $65 billion and Caribbean banking centres $113 billion. 

PPI offers fifty ways to cut deficits. The Treasury Department lists its creditors for 2005 and for 2000-2004.  America's top two creditors: The Bank of Japan, The People's Bank of China

The other king, Mervyn King, Bank of England Governor, noted in January that interest rates on government bonds and other investments were at a historically low level, citing two possible explanations.  One reason could be the increased level of saving worldwide, driven by leading Asian economies such as China, which is therefore a natural and expected phenomenon. The other is consumers' willingness to take on more risk without demanding a higher return on their investment, which we have mentioned in Investment above and which is a more short term cultural phenomenon and less expected.  King noted that policymakers must closely watch the price of assets such as bonds, oil, gold and property to keep inflation in check.

US consumer prices rose by the highest rate for five years in 2005 after a surge in energy costs, according to the Labor Department. Its Consumer Price Index was up 3.4% for the whole of last year, equalling the increase seen in 2000. The rise was led by a big jump in global oil prices having a knock-on effect on US petrol costs. Stripping out volatile energy and food costs, the core inflation rate posted a 2.2% rise in 2005, unchanged from 2004.

Trade and FDI

China’s foreign-exchange reserves ballooned to $818.9 billion at the end of last year, putting the country on the road to hitting the $1 trillion mark and claiming the world’s largest reserves this year.  China's foreign currency reserves jumped 34% by the end of 2005. Its reserves have ballooned in recent years as the central bank has bought most of the dollars generated by foreign trade and inward investment. Although its strategy has helped to dampen inflation and hold back the value of the yuan, it has annoyed China's trading partners, especially the US, who feel the yuan is undervalued and creates an unfair trading environment.

Japan has the world's biggest foreign currency reserves, with $846.9 billion, but at the current rate of growth, China's reserves could overtake it, hitting $1 trillion this year. China also revealed in January that its trade surplus with the rest of world had more than tripled to $ 102 billion in 2005, up from $ 32 billion in 2004.

IMF Managing Director Rodrigo Rato examines deficits and global imbalances, and the potential benefits of the WTO's Doha Round for lower-income Americans.



As noted in Geopolitics above, in the State of Union address President George Bush has admitted the US is "addicted to oil" but pledged to reduce its dependence on Middle East imports by three quarters by 2025, largely through the development of ethanol fuel for cars derived from wood chips, vegetable matter and grass.  "By applying the talent and technology of America, this country can dramatically improve our environment, move beyond a petroleum-based economy, and make our dependence on Middle Eastern oil a thing of the past". The scheme "the Advanced Energy Initiative" is to involve a 22% increase in federal research into clean fuels. The research would also aim at developing "zero-emission coal-fired plants, revolutionary solar and wind technologies, and clean, safe nuclear energy", Mr Bush said. But the most important goal is changing the fuel that powers America's cars, which account of 75% of all oil production according to administration figures.

Exxon Mobil, aided by strong energy prices, disclosed that it had set a record for profits among American companies, reporting $36 billion in annual income. But while most companies would be proud to trumpet record profits, Exxon Mobil did everything it could to play down the news. For example, Exxon Mobil paid for advertisements in leading newspapers arguing that profit margins in the industry lagged far behind those of other industries, like pharmaceuticals and banking. Growing oil profits are generating new scrutiny of the industry, with legislators and taxpayer groups expressing concern over Big Oil's good fortune, as soaring energy prices put increasing pressure on the pocketbooks of consumers.

California regulators approved a $ 2.5 billion solar-power subsidy, the largest ever in the U.S., offering more business to solar-panel makers such as SunPower Corp. and Evergreen Solar Inc. that already are struggling to meet demand. The state, the most populous in the U.S., plans to spend the money over 10 years starting in 2007 on rebates for consumers and businesses.  It may be several years before manufacturers can meet rising demand for solar panels, which convert solar energy to electricity without causing pollution. The California subsidy will add to a backlog of orders from Germany and elsewhere in Europe, where governments are promoting the use of clean, renewable energy sources over oil, natural gas and coal.

"All of the manufacturers are selling everything they can make today,'' said David Edwards, an analyst with American Technology Research in San Francisco. "They have to ramp up manufacturing even faster."  Global production of solar panels grew 33 percent in 2005,  according to Piper Jaffray estimates. Growth will slow to 6 percent this year because of a lack of silicon, the raw material used in solar panels. "It will take some time for the industry as a whole to develop capacity and infrastructure to substantially increase installations in California,"  Richard Chleboski, chief financial officer at Evergreen, said in an e-mailed statement. "Manufacturers were capacityconstrained in 2005 and will likely be constrained in 2006."

Italy faced a winter energy crisis.  Some regions were running low on fuel with insufficient gas supplies, and this combined with especially low temperatures resulted in deaths. People have been advised to conserve energy by turning down the thermostat and taking showers instead of baths.

Italy has already taken a leading initiative in the Dark Skies campaign in Rome. The Dark Skies campaign seeks to control the use of public lighting and avoid ‘light pollution’, defined as ‘any artificial light that interferes unreasonably with a person’s enjoyment of the natural darkness.’ And now Ireland is being encouraged to follow suit because people have noticed the illumination of the sky accelerated by Ireland's rapid expansion.  The environmental lobby group Friends of the Irish Environment wrote to the Minister for the Environment urging him to follow the example of Rome and dim Ireland’s urban lighting at night.  In Ireland developments over the last 10 years have seen a dramatic lose of dark skies at night, particularly in the commuter belts around cities.http://friendsoftheirshenvironment.net

The world's fastest electric road car, the eight-wheel Eliica, has made its début in Japan. Its aesthetics will be debated, and its performance is exciting.  It is even within the price range of top end retail car buyers.  Its got Delorean appeal!  Capable of speeds in excess of 230mph, the Eliica - which stands for electric lithium-ion battery car - has an 800bhp engine and can reach 60mph in just 4sec.   Its inventor, Hiroshi Shimizu, claims the Eliica could reach 250mph. Currently a production version could cost € 220,000 and because it takes 10 hours to recharge the batteries so a backup battery charging in the garage is required.

Brazil has pioneered ethanol fuel for thirty years and in the current high oil price environment savings are substantial.  A VW Fox costs $29 to fill up on ethanol made from sugar cane, an option that's available at 29,000 gas stations from Rio to the Amazon. A comparable tank of gasoline would have cost him $ 36.  If the price of oil stays at current levels, savings can be $300 - $ 400 a year.At current prices, Brazil can make ethanol for about $1 a gallon, according to the World Bank. That compares with the international price of gasoline of about $1.50 a gallon. Even though ethanol gets less mileage than gasoline, in Brazil it's still cheaper per mile driven. As a result, ethanol now accounts for as much as 20% of Brazil's transport fuel market. The country's use of gasoline has actually declined since the late 1970s. The use of alternative fuels in the rest of the world is a scant 1%.

Climate Change and Environment

The Asia-Pacific Partnership on Clean Development and Climate was launched in January.  It says it aims to tackle global warming through promoting non-polluting technologies, setting no targets for reducing emissions. The members of this new outfit are six of the world's most polluting nations - America, Australia, China, India, Japan and South Korea.  The partnership also brings together executives from energy and resources firms.They insist it will complement other efforts to combat global warming, such as the Kyoto Protocol. But critics dismissed the club's first meeting as a fig leaf, a smokescreen and a “coal pact”, among other terms of derision. 

The top climate scientist at NASA says the US administration has tried to stop him from speaking out since he gave a lecture last month calling for prompt reductions in emissions of greenhouse gases linked to global warming.  The scientist, James E. Hansen, long-time director of the agency's Goddard Institute for Space Studies, said that officials at NASA headquarters had ordered the public affairs staff to review his coming lectures, papers, postings on the Goddard Web site and requests for interviews from journalists.



Google entered the Chinese market with google.cn and its agreement to compromise on screening certain sites to allow entry has been widely debated. Google’s rational is that their presence in China will somehow do more good than if they stood by their principles and refused to censor their services. Unfortunately while this may be good capitalism it opposes the culture that has attracted users and investors to Google - "Don't Do Evil". The right, non-evil thing to do was to tell the Chinese government that Google would be available uncensored or wouldn’t be available at all. Google would have been turning down billions of dollars, but most agree that there are more important things than dollars (especially when you've already got billions of them).  As  Dan Primack of PE Wire says "It’s only fair that Google change its motto from “Don’t do evil” to “Don’t do evil, unless you can access a really large market." 

Further reports indicate that online retailing boomed during the holiday season.  Internet shopping among UK consumers soared almost 50% in the 10 weeks before Christmas, according to e-commerce trade body IMRG. Shoppers spent £ 4.98 billion online during the period, compared with £ 3.3 billion for the same time a year earlier. For 2005 as a whole, it calculated that spending over the internet in the UK totalled £ 19.2 billion, 32% more than 2004. Overall retail sales rose by 4% in December compared to the same month in 2004.  The figure from the Office for National Statistics was in line with expectations.  IMRG managing director Jo Tucker said the 50% growth in online sales represented a "step change in retailing at Christmas".

In response to a 2004 European Union (EU) anti-trust ruling which ordered the company to share its code with competitors Microsoft has said it will give rival software companies access to parts of the source code for its Windows operating system.  The concession came three weeks ahead of the EU's compliance deadline, which threatened fines of  € 2 million a day. The code will help rivals make their software compatible with Microsoft's.  The EU's second highest court, the European Court of First Instance, will hear Microsoft's appeal against the 2004 ruling in April.

Electronics giant Sony reported a surprise jump in third-quarter profits, which was good news after the recent problems with its CD protection embarrassments.  Pre-tax profit for the three months to 31 December beat forecasts with a 51% jump to 226 billion yen ($ 1.95 billion). The results were lifted by sales of the PlayStation Portable games console, offsetting losses at its film division. The figures prompted the company to drop its forecast of a first annual loss in 11 years.  It is due to launch its latest PlayStation 3 (PS3) games console in the spring, about six months behind Microsoft's rival Xbox 360 player.


Holonics and LOHAS

Holonics * Health * Environment * Education * Living


According to recent comment by McKinsey & Co, the leading business consultancy, trends are more important than management. But it seems that businesses rarely adopt long term planning. McKinsey say that it is wrong that business success is all about execution. The right product markets, technology, and geography are critical components of long-term economic performance. Bad industries usually trump good management.  In sectors such as banking, telecommunications, and technology, almost two-thirds of the organic growth of listed Western companies can be attributed to being in the right markets and geographies.  Companies that ride the currents succeed; those that swim against them usually struggle. Identifying these currents and developing strategies to navigate them are vital to corporate success. They present a framework for long term planning.  They say that predicting short-term changes or shocks is often a fool's errand. But forecasting long-term directional change is possible by identifying trends through an analysis of deep history rather than of the shallow past. Even the Internet took more than 30 years to become an overnight phenomenon. Further background on long-term forecasting can be seen at the World Future Society website.

James Montier of DKW highlighted the benefits of a contrarian approach to planning, but explained the pain that must be borne to execute this strategy.  His synopsis summarised here illustrates what differentiates enlightened behaviour (even in investment) - self-control.  In a world in which everyone is trying to outperform each other, doing what everyone else is doing is unlikely to generate outperformance. This is brought home in a new paper by Lehavy and Sloan Investor recognition and stock returns, available from www.ssrn.com. They show that the stocks institutional fund managers are busy buying are outperformed by the stocks the fund managers are busy selling. Such a strategy is far from painless. Doing the opposite of everyone else is not something that comes naturally to us. Neuropsychologists Naomi Eisenberger and Matt Lieberman have found that social pain (the pain of not being included in the in-crowd) is experienced in exactly the same areas of the brain as real physical pain. So following a contrarian approach might well feel like having your arm broken on a regular basis. Unfortunately a vast array of psychological research suggests that our ability to use self-control to force our cognitive process to override our emotional reaction is limited. Each effort at self-control reduces the amount available for subsequent self-control efforts. Baumeister (2003)13 concludes his survey by highlighting the key findings his research has found:

Under emotional distress, people shift toward favouring high-risk, high pay-off options, even if these are objectively poor choices. This appears based on a failure to think things through, caused by emotional distress.

When self-esteem is threatened, people become upset and lose their capacity to regulate themselves. In particular, people who hold a high opinion of themselves often get quite upset in response to a blow to pride, and the rush to prove something great about themselves overrides their normal rational way of dealing with life.

Self-regulation is required for many forms of self-interest behaviour. When self-regulation fails, people may become self-defeating in various ways, such as taking immediate pleasures instead of delayed rewards. Self-regulation appears to depend on limited resources that operate like strength or energy, and so people can only regulate themselves to a limited extent.

Making choices and decisions depletes this same resource. Once the resource is depleted, such as after making a series of important decisions, the self becomes tired and depleted, and its subsequent decisions may well be costly or foolish.

The need to belong is a central feature of human motivation, and when this need is thwarted such as by interpersonal rejection, the human being somehow ceases to function properly. Irrational and self-defeating acts become more common in the wake of rejection.


The most telling evidence of Americans' dissatisfaction with traditional health care is the more than $27 billion they spend annually on alternative and complementary medicine, according to government estimates. Millions of people are taking active steps to venture outside the mainstream, whether by taking the herbal remedy echinacea for a cold or by placing their last hopes for cancer cure in alternative treatment, as did Coretta Scott King, who died this week at an alternative hospice clinic in Mexico. This straying from conventional medicine is often rooted in a sense of disappointment, even betrayal, many patients and experts say. When patients see conventional medicine's inadequacies up close — a misdiagnosis, an intolerable drug, failed surgery, even a dismissive doctor — many find the experience profoundly disillusioning, or at least eye-opening.  In the US haggles with insurance providers, conflicting findings from medical studies and news reports of drug makers' covering up product side effects all feed their disaffection, to the point where many people begin to question not only the health care system but also the science behind it. Soon, intuition and the personal experience of friends and family may seem as trustworthy as advice from a doctor in diagnosing an illness or judging a treatment.

A major new report from the UK shows that changes to diet over the past 50 years may be playing a key role in the rise of mental illness. But the report also highlights a continuing division of opinion among health professionals over the role of nutrition in the prevention and treatment of disease. Feeding Minds - produced in partnership by food campaign group Sustain and the Mental Health Foundation (MHF)  - says that the way food is now produced has altered the balance of key nutrients that people consume. It also shows that over the past five decades the UK population has been eating less fresh foods and more saturated fats. The report’s authors say this is leading to depression and memory problems, although they acknowledge that current research is not conclusive. Dr Andrew McCuklloch, chief executive of MHF said “We are only just beginning to understand how the brain as an organ is influenced by nutrients it derives from the foods we eat and how diets have an impact on our mental health.” But he added that addressing mental health problems with changes in diet was showing better results than drugs or counselling. The report highlights how the types of fats we consume have altered dramatically, partly through modern farming methods and food production and partly due to dietary change. Lower intake of omega-3 fatty acids due to declining fish consumption (down two thirds) and reduced consumption of fresh vegetables could, says the report, be linked to depression, schizophrenia, attention deficit hyperactivity disorder (ADHD) and Alzheimer’s disease.

In new guidelines for treating coughs, the American College of Chest Physicians advised not taking cough syrup and instead relying on familiar, low-cost antihistamines against coughs caused by simple upperrespiratory tract infections. "Cough syrups may suppress a cough a little bit, but they don’t treat the underlying cause," said Dr. Michael Alberts, a pulmonologist and president of the physicians group. "They won’t make you better any faster." Another option that some doctors recommend: Just tough it out, because colds typically go away on their own. Each year, Americans buy about $ 2.9 billion worth of over-the-counter cold medicine and another $ 400 million of prescription cold medication, a university study found in 2003. About $270 million of that goes for cough syrup, which generally sells for a few dollars a bottle. Recent studies have suggested that cough syrup - usually containing the cough suppressant dextromethorphan and the expectorant guaifenesin - works no better than sugar water. A small Pennsylvania study of 100 children in 2004 and a British analysis of adult studies in 2002 reached the same conclusion. In drafting its new guidelines - released in the journal Chest - the physicians group looked at the research and concluded that cough syrup can give short-term relief for some people - such as helping them fall asleep - but that’s about it, Alberts said.  The group recommends using older-generation antihistamines that can attack the nasal drip and runny noses that cause many coughs. These include drugs such as Dristan and Tylenol Severe Allergy. Newer, more expensive antihistamines do not help a cough, the group said. Those includes Allegra, Claritin and Zyrtec. Over-the-counter cough syrups generally contain drugs in doses too small to be effective, or contain combinations of drugs that have not been proved to treat coughs, said Dr. Richard Irwin, chairman of a cough-guidelines committee for the chest-physicians group.

The European Union has singled obesity out as a major threat to public health.  In response global drinks firms, including Coca-Cola and Cadbury Schweppes, have unveiled a European initiative aimed at tackling the problem of obese children.  Unesda, the Union of European Beverages Associations, said it would limit youth advertising, control sales in schools and improve nutritional labels. It also pledged a wide range of drinks, including sugar-free and low-calorie, in container sizes that limit intake. As part of the proposals, Unesda members have undertaken to not to put "any marketing communication in printed media, websites or during broadcast programmes specifically aimed at children under the age of 12". It also will "avoid any direct appeal to children under the age of 12 to persuade parents or other adults to buy beverages for them". One drinks company representative in the UK told the BBC that the main driving force behind the changes were the consumers themselves, many of whom were demanding healthier options.


Unfortunately the infiltration of GMO in to agriculture and therefore nature continues in a most pernicious way. EU Agriculture Commissioner Mariann Fischer Boel defended her plans to permit more genetically modified (GMO) content into organic farming.  The draft law would allow products with up to 0.9 percent of GMO content to retain a label of "EU organic".  The rationale is self-serving, short-term and unreasonable.  Excuses include the whine that it would be too costly for farmers to achieve higher purity in their organic produce - which of course is only an issue once contamination has been permitted. And it is more likely to remove liability for contamination from teh drug companies are pushing GMOs in to Europe.  If an organic producer is contaminated "adventitiously" by a neighbour, feed/seed supplier to the level of 0.9%, it doesn't matter in any case but is perfectly legal, so there are fewer problems of enforcement because "it hasn't technically happened".

This news follows the application by Monsanto made in December 2005 to the EU to grow its GM Roundup Ready soybeans across the whole of Europe once its current license - permitting the beans' import but not cultivation - expires in 2006.

On the same subject of  GM spread a new Greenpeace report reveals that the GM soya crop in Romania covers more hectares than are officially registered. Due to illegal cultivation and uncontrollable contamination, conventional and organic farming is now impossible in many regions.  Romanian Government officials, reacting to Greenpeace's findings, announced that the cultivation of GM crops should be reduced in 2006 and phased out completely by 2007, when it is due to join the EU. However, Monsanto filing an application for the whole of Europe now would effectively prevent Romania ridding itself of GM crops and GM contamination.

A Friends of the Earth report reveals that:

  • There have been no new GM crops approved for cultivation in the EU since 1998, and despite 30 years of research and public money the industry has only delivered two GM traits: herbicide tolerance and insect resistance

  • Commercial growing on any scale in the EU is still limited to just Spain, and even there the number of GM events permitted has been reduced to just one

  • The number of countries and regions banning GM products has increased over recent years

  • Europeans continue to reject GM foods

  • GM crops have failed to tackle hunger and poverty.

Three species of vulture which are dying out faster than any other bird species could be extinct within five years because of the widespread use of a painkiller to treat cattle in India and Pakistan. Conservationists have urged the Indian government to fulfil its promise of saving the vultures by banning the drug and substituting it for one that is proven to be safe. The drug, diclofenac, is widely used by cattle owners on the Indian subcontinent, and although it is harmless to many animals is it highly toxic to vultures when they feed on contaminated carcasses. The three species - the oriental white-backed, long-billed and slender-billed vultures - were once a common sight in India and Pakistan but since the 1980s their numbers have declined by more than 97pc. The vultures have now been placed on the list of critically endangered species.


Many of the initiatives that Astraea follows are in new areas of science or society such as holonics and alternative energy.  Reflecting on the emergence of intelligences in human society it occurs to me that we have good reason to be optimistic that the rapid changes required by humans to live in the new high energy consumption world we have created:  In order to understand what we understand we must have the capacity to understand more than we understand.  And that capacity is also reflected in the understanding for the population rather than that of the individual. While we may imagine that "we know it all", and that confidence energises our creativity and entrepreneurialism, it increasingly seems that humanity will produce the intelligences necessary to tackle the burgeoning challenges of the modern era, even though they are not imagined today.

If you want to understand reality (and not just reality TV), then one source might be the web site created by Amherst College philosophy professor Alexander George.  Among the hundreds of questions fielded by a team of volunteer philosophers on call: "Assuming there is no afterlife, is it irrational to fear death?"; "What is the purpose of math?"; "Is there such a thing as absolute truth?"; and "Does the future exist in any knowable fashion?". Another enlightening site is www.philosophyforkids.com.


The US Supreme Court has upheld a law allowing doctors in the state of Oregon to help terminally ill patients die. Justices voted 6-3 to back the law, under which doctors are thought to have assisted with at least 208 suicides. The ruling could free other states to pass laws like Oregon's, which is the only one of its kind in the US. New Chief Justice John Roberts was in the minority in the court's first major case on ethics since he joined it.

"God" was used again as a political tool in America, this time by the mayor of New Orleans.  He has provoked new outrage by calling Hurricane Katrina God's punishment for invading Iraq and insisting the city become "chocolate" again. Mayor Ray Nagin, notorious for his outspoken, off-the-cuff rhetoric, also suggested that God was especially angry with black America for its treatment of its women and children. "Surely God is mad at America," Mr Nagin, himself black, said at a ceremony to mark Martin Luther King day. "He sent us hurricane after hurricane after hurricane and it's destroyed and put stress on this country. Surely He's not approving of us being in Iraq under false pretences. But surely He's upset at black America also. We're not taking care of ourselves, we're not taking care of our women, and we're not taking care of our children. What are we doing? Why is black-on-black crime such an issue? Why do our young men hate each other so much that they look their brother in the face and they will take a gun and kill him in cold blood?"  His diagnosis of the moral state of America's blacks is shared by many political and church leaders. Comedian Bill Cosby has also voiced them. But it was the mayor's thoughts on the future racial make-up of the city that prompted the most disquiet. "It's time for us to rebuild a New Orleans, the one that should be a chocolate New Orleans," Mr Nagin said. "This city will be a majority African-American city. It's the way God wants it to be. You can't have New Orleans no other way." Before Hurricane Katrina struck four months ago, scattering three quarters of its population, the city was 68pc black. The mayor's speech  appeared to be aimed at black concerns that white residents would prefer poorer blacks not to return to the city's ruins. But it seemed to backfire.

A thought provoking article on Godless Morality by Singer and Hauser develops one's reflection on the changing role of religion in modern society.

National Geographic published a video online exploring the rise of Bhuddist practices in America and the way in which it is improving lifestyles.


Activities, Books and Gatherings

The year started off well and busy on all fronts with new developments in training, investment and in the garden.  We're looking forward to a productive Year of the Dog.

Feet of Clay by Terry Pratchett plays with the nature of religion reflecting ancient traditions and modern issues against the backdrop of a political power play.  Another great read with uncanny reflections of current events!  Here are a couple of extracts to savour. 

"They thought of themselves part of the march of history, the tide of progress an the wave of the future.  They were men who felt The Time Had Come.  Regimes can survive barbarian hordes, crazed terrorists and hooded secret societies, but they're in real trouble when prosperous and anonymous men sit around a big table and think thoughts like that."

"No one live a completely blameless life.  It might be just possible , by lying very still in a cellar somewhere, to get through a day without committing a crime.  But only just.  And even then,  you were probably guilty of loitering."

"She always had a soft spot for the underdog.  You had to.  Not because they were pure or noble, because they weren't.  You had to be on the side of the underdogs because they weren't overdogs."

BeTheChange has launched subscriptions and, as before, I strongly recommend this gathering to anyone who wants to expand their mind.   It will be held on 11-13 May.


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